Executive Summary

On Sunday, January 26th, a decision was issued in the latest round of legal motions between the CFP Board and the plaintiffs Jeffrey and Kimberly Camarda regarding their looming public disciplinary action from the CFP Board for what it claims were violations of the compensation disclosure rules.

In a blow to the CFP Board, the judge fully accepted an amended complaint from the Camardas, which is now seeking monetary damages in addition to “just” blocking the CFP Board’s public disciplining of the Camardas. In addition, the judge denied all of the CFP Board’s various motions to limit the scope of the case, including requests to quash subpoenas of various individuals for deposition. As a result, the breadth of discovery for the Camardas will be fairly wide, as they attempt to substantiate their claims that the CFP Board is in breach of contract, engaging in unfair competition, has violated due process, and may even be responsible for antitrust violations and having engaged in “false advertising” by misleading the public about its standards.

Of course, the fact that the judge has ruled that the full scope of the Camarda complaint will be considered and that the full breadth of their discovery requests will be honored does not actually mean that the CFP Board has been found guilty of anything at this point. Nonetheless, given the coming depositions that must now move forward, and the information requested by the Camardas on various other CFP Board disciplinary cases, a whole lot of additional detail about the inner workings of the CFP Board is about to come to light. To say the least, this case is no longer “just” about the definition of fee-only; it’s now about the legitimacy of the organization’s enforcement process and the standards for all CFP certificants, and raises the question of whether the CFP Board may have made a serious strategic mistake by trying to make Camarda vs CFP Board of Standards its defining case.

Latest Decisions in Camarda Vs CFP Board

The latest decisions from the District Judge in Camarda vs CFP Board were entered as Minute Orders on Sunday, January 26th. Although there were ultimately six different orders rendered by the judge, they essentially amount to two key developments: that the amended complaint from the Camardas filed last September, which expanded from the original complaint to include a wider array of charges and to seek monetary damages, was accepted; and that the CFP Board’s various motions to quash subpoenas and other discovery requests that it claimed were outside the scope of the Camarda case and were nothing more than a “fishing expedition” were uniformly denied.

As a result of the motions, the legal proceedings will now move forward again, and in the coming weeks and months various members of the CFP Board staff (after a recently contentious deposition of CFP Board staff member Adam Zajac last month), the Disciplinary and Ethics Commission, and potentially some others as well, will go through depositions. In addition, the CFP Board will be compelled to turn over various documentation on its disciplinary proceeds in other cases, as the Camardas try to establish that either their case was handled in an inconsistent manner, or conversely that the CFP Board had a pattern of problematic rulings in matters brought before the DEC.

Perhaps even more significant, though, is that in the process of accepting the Camardas’ amended complaint, the court will now be considering issues that speak to the very legitimacy of the CFP Board as an organization seeking to promote the CFP certificant and oversee its CFP certificants.

Understanding The Amended Camarda Complaint

In the original Camarda legal complaint, the Camardas had simply sought declaratory relief that the CFP Board had “fail[ed] to adhere and follow its own rules, guidelines, and standards for disciplinary proceedings and… [had] render[ed] a disciplinary sanction wholly devoid of evidentiary support or basis in the CFP Board’s own rules.” In essence, the Camardas were asking the court to agree that they shouldn’t be disciplined as a result of the CFP Board not honoring the integrity of its own process. Accordingly, the Camardas also sought injunctive relief that the CFP Board would be barred from issuing a public letter of admonition, if the court agreed with their position.

However, as the case escalated publicly, the Camardas filed a motion last September to amend their original complaint and expand its scope. In their expanded and amended complaint, the Camardas claimed that due to the publicity of the case their business had already been damaged, and that they were seeking monetary damages as well as an injunction against the CFP Board to block its public letter of admonition. Perhaps more significant, though, the Camardas expanded the scope of their complaint – ostensibly to help substantiate their claim for damages – and in the process have raised new concerns for and regarding the CFP Board. Specifically, the Camardas now allege 7 different counts against the CFP Board:

I. Breach of Contract. That the CFP Board’s rules that its CFP certificants must adhere to amounts to a contract, where certificants agree to obey the rules and the CFP Board agrees to honor its own rules and guidelines for investigating and prosecuting disciplinary actions, but that in the Camarda case the CFP Board failed to adhere to and follow its own rules, denied the Camardas due process, and issued a disciplinary action without sufficient (or any) evidence.

II. Unfair Competition. Alleged primary because the public Letter of Admonition would damage the Camardas’ business and render them at a competitive disadvantage, given that the Camardas claim that the CFP Board’s ruling of a compensation disclosure violation itself was without merit.

III. Common Law Due Process/Fair Procedure. An extension of (I), that the CFP Board did not provide due process and did not use fair procedures when making its decision.

IV. Violation of Lanham Act. For those not familiar, the Lanham Act imposes a civil liability on an organization that makes false and misleading statements (think “no false advertising” to consumers or the public). In this regard, the Camardas allege that because the CFP Board has an unfair process for implementing its own rules and guidelines, that its public statements regarding the standards for CFP certificants and their adherence to those standards is suspect.

V. Violation of Sherman Act. The Sherman Act is basically anti-trust legislation, and while the existence of membership and trade associations can be legitimate (as is the granting of a professional designation), the Camardas alleged that “in enacting vague rules governing members’ conduct, [and] in enforcing those rules in an arbitrary and capricious manner” along with the (problematic) specifics of its disciplinary and appeals process, the CFP Board was engaged in an unreasonable restraint of trade (i.e., an anti-trust violation) given the public ramifications of being found guilty.

VI. Violation of Sherman Act (part 2). In this section of the complaint, the Camardas also allege that “the CFP Board has monopoly power in… the nationwide market for financial planning services” because granting the use of the CFP mark has significant commercial benefits and because the Camardas would be significantly damaged “in an anticompetitive way” by the CFP Board’s public Letter of Admonition.

VII. Permanent Injunctive Relief. This would bar the CFP Board from ever publicly admonishing the Camardas regarding this incident (if the courts find that the CFP Board violated one or several of the above provisions such that this remedy is warranted).

As evidenced from the list of charges itself, the amended Camarda complaint (as now accepted by the judge) has significantly expanded the scope of the lawsuit with the CFP Board, and this is no longer just about the definition of fee-only. While initially the lawsuit was little more than an attempt to block a public Letter of Admonition, the introduction of damages has introduced additional charges to substantiate the damages. In essence, charges I, II, III, and V are all various ways that the Camardas allege the CFP Board failed to adhere to its own processes and the consequences of failing to do so.

However, section VI is more substantive, in that it alleges the CFP Board is using its trademarked CFP marks to create a monopoly around financial planning. Of course, anyone who is an active financial planning practitioner is probably highly cognizant of the wide range of people who conduct financial planning services or hold themselves out as financial advisors/planners/consultants without the CFP marks, so it’s hard to imagine that the CFP Board has really ‘cornered the market’ on financial planning services. Nonetheless, the issue is now on the table.

Perhaps the most concerning allegation facing the CFP Board, though, is section IV – the Lanham Act charge – suggesting that the CFP Board has effectively been engaged in “false advertising” by claiming that its certificants adhere to certain standards when in practice it is not effectively overseeing and enforcing those standards. In point of fact, this is not the first time that some have claimed the CFP Board is engaging in “false advertising” to the public – there have been others in the past who have suggested that the CFP Board’s “Fiduciary promise” is not real, and fiduciary advocate Ron Rhoades has written about the issue on his blog as well. Yet it’s one thing for fiduciary advocates and CFP Board detractors to suggest the CFP Board has been engaged in “false advertising” around its standards; it’s another thing to actually test it in a real court of law.

Implications For The CFP Board And Financial Planning

While being found guilty charges I, II, III, and V (and the associated VII for injunctive relief) would be damaging to the CFP Board, and the anti-trust “monopoly” allegation seems a stretch (to put it mildly, though ironically it least it would substantiate just how valuable the CFP marks are!), it seems the greatest risk to the CFP Board is that the court rules against them on the Lanham charges and finds that the CFP Board has in fact been engaged in “false advertising” to the public with respect to the standards for those that hold the CFP marks.

Ultimately, it’s hard to know how any of these rulings will go – which to some extent, is the wild card reality of taking a case to court. The affidavit from the Camardas filed last year telling their side of the story does not paint a pretty picture, raising that the CFP Board started the process with an unwarranted complaint from a disgruntled former employee, that their hearing had an “utter lack of evidence of rules violations” and the CFP Board Appeals panel just “rubber stamped” the original ruling, and that throughout the CFP Board has acted in an “arbitrary and capricious” manner.

Technically, if the CFP Board is found guilty on these charges, it still doesn’t necessarily mean that it was ‘wrong’ in its definition of “fee-only” compensation titles or its ruling on the Camardas, per se, but that its disciplinary process itself is lacking and needs to be bolstered. At a minimum, expect that if the CFP Board loses on the initial charges, it will be an embarrassing black eye for the organization, and force it to more heavily reinvest into its enforcement and disciplinary process – though notably, because in the end the CFP Board is a 501(c)(3) entity protecting a trademark, and not a regulator overseeing actual laws regarding financial planning, it’s not entirely clear if the CFP Board even could enforce its rules in much greater depth without bumping into privacy laws (i.e., the CFP Board doesn’t have the right to subpoena evidence, compel witnesses to testify, etc.).

Perhaps most damaging – though questionable if it’s really a risk – would be having the CFP Board found guilty of an anti-trust/monopoly violation, though its hard to see how this is realistically a concern. There are many professions that have ‘advanced’ voluntary designations that also have a Code of Ethics and Professional Standards to which certificants must adhere, and they are not routinely ruled a monopoly just because there’s a designation with standards. And ultimately, while the share of financial advisors that are CFP certificants has been growing, it’s still only about 25% of all financial advisors (and it’s hard to have a monopoly with a minority!). Nonetheless, the potential for anti-trust/anti-monopoly laws to be applied against the CFP Board does raise the long-term question of what happens when it really is the case that the majority (or more) of financial advisors are CFP certificants? At some point, the CFP Board must either shift from overseeing a trademark to becoming a legally recognized regulator, or must otherwise get the CFP marks codified into law and make itself the standards board for those legally-recognized marks. While arguably that doesn’t have to happen for several more years (or a decade or few?), the Sherman Act allegation is a reminder that the CFP Board must cross this bridge someday.

But as noted earlier, the greatest danger to the CFP Board in the Camarda case now – especially if it ever hopes to be recognized as a regulator for financial planning and/or have the CFP marks codified into law – is that it might be found guilty on the Lanham Act charges. In this area, the Camardas are certainly not the first to allege that the standards the CFP Board holds out to the public – for which the CFP Board conducts a significant public awareness campaign, funded by a nearly 80% dues increase a few years ago – might not be as clearly enforced as the CFP Board implies (and notably, the Camarda complaint is also subpoenaing Fondulas Strategic Research, raising a question of whether there’s an issue with the survey research it conducted for the CFP Board’s latest certificant survey about the success and satisfaction of its own CFP certificant base). Yet again, it’s one thing for allegations that the CFP Board overpromises on its standards to be made in the industry press; it’s another if the CFP Board is actually found guilty in a court of law, which would be a potentially massive setback to consumer and media support of the CFP marks, its public awareness, and its future aspirations to see the CFP marks codified into law. One wonders whether CFP Board detractors and competing organizations may even attempt to file “friendly” briefs in the court on behalf of the Camardas or otherwise provide statements/evidence to challenge the CFP Board on the Lanham Act charges of “false advertising” around its standards.

By this point, some might be wondering – as I did early on – why this case hasn’t been settled long ago between the CFP Board and the Camardas. According to the Camardas, they have actually made attempts to settle the issue repeatedly and keep it out of the courts, but it has been the CFP Board that has firmly held the line that it was in the right with its actions, and therefore that it will see the case through, regardless of the apparent cost. To be fair, it’s worth noting that a victory for the CFP Board would be a resounding victory across the board, adding further gravitas and legitimacy to the organization that its enforcement process and standards were substantiated. Yet a defeat could be equally or more damaging in the opposite direction, and while the CFP Board has yet to be deposed and tell its side of the case, the story the Camardas tell in their affidavit does not paint a very pretty picture. And we still don’t know if/whether anything else will come to light as the Camarda discovery process gets underway again and the depositions with the CFP Board get underway and other documents are provided to the court.

Personally, in the end I can appreciate the CFP Board trying to draw a line in the side and stick to it – a crucial step to its legitimacy in enforcing its CFP marks – but as the details of the case emerges, it raises the concerning question about whether the CFP Board really chose the “right” line to defend, or whether it has overplayed its hand after cruising through nearly 5 years without any setbacks or bad press. Was this really the right case, with such a “messy” fact pattern, for it to try to fight for its court-recognized legitimacy as an financial planning standards organization? Was it really a good idea to keep raising the stakes from what was initially just a dispute regarding a public Letter of Admonition into the court case that will determine whether the CFP Board is guilty of Sherman Act and Lanham Act violations? I guess we’ll know soon enough, but I have to admit that while even losing won’t mean “the end” of the CFP marks – though it would clearly be a material setback, and a costly one given the legal costs that are being incurred on both sides to fight the battle – the whole case is leaving me nervous about whether the CFP Board may have made a serious strategic mistake about making this the defining case about the legitimacy of the organization’s enforcement process and the standards for all CFP certificants.

So what do you think? Has the CFP Board made a mistake in pursuing the Camarda case? Should the CFP Board be worried about the Lanham Act charges of “false advertising” to the public? Will this be a victory for the CFP Board if they win? What are the consequences to the CFP Board and all CFP certificants if they lose?